Congress saves SBIR program at the last minute, with strings attached

WASHINGTON — With just one day left until a program used widely within the Pentagon to spur innovation hits its expiration date, congressional lawmakers have reached a deal to fund the initiative for the next three years, but with some new strings attached.

Following the Senate’s lead [PDF], today the House voted 411-9 to pass the 43-page legislation that would extend the Small Business Administration’s (SBA) federally funded Innovation Research (SBIR) and Technology Transfers (STTR) program through 2025, ahead of its Sept. 30 expiration date.

Some of the major changes spelled out in legislation, meant to curb potential abuse of the program, include tighter restrictions on contract awards, mandatory disclosures of foreign ties and new oversight reporting.

DoD is the primary user of the SBIR and STTR program, which has reached a total budget of over $3 billion. With so much money at stake, the popular program has come under the microscope of lawmakers on both the House and Senate small business committees, and was subject to a drawn out legislative process this time around.

Getting the updated legislation through Congress was “a Herculean effort by a number of people and committees in Congress… You had a lot of people who were looking at this very in-depth,” Kea Matory, director of legislative policy at the National Defense Industrial Association, told Breaking Defense Monday.

Matory said all agencies who use the program — including DoD — provided feedback when crafting the legislation to make sure the new language wasn’t only benefiting one particular agency. 

“And that’s why it is so long, that they go into some detail about what that will mean for each of the agencies, where it will impact them, what requirements are for DoD, but not for others,” she said.

Matory said she thought SBIR and STTR was a “darn good” program, but acknowledged it wasn’t perfect. The new language was written after some lawmakers raised concerns about exactly how money flowed through the program. The most outspoken critic on the Hill about SBIR/STTR has been Sen. Rand Paul, R-Ky, the ranking member of the Senate Small Business Committee. He proposed reforms that he said would combat foreign influence and “curb abuse” in the form of companies that accept government funding in dozens of SBIR Phase I and II awards but never transition to commercialization in Phase III.

Some of the proposed changes were first reported by Breaking Defense based on a July letter from Undersecretary of Research and Engineering Heidi Shyu to lawmakers, which discussed the tightening of SBIR/STTR benchmarks. Two months before that, Shyu and undersecretary of defense for acquisition and sustainment Bill LaPlante were raising the alarm in another letter, first reported by Defense News, saying that the failure to reauthorize the program would result in approximately 1,200 warfighter needs not being addressed. 

The Senate’s passage of legislation on Sept. 20 paved the way for the program’s re-authorization, and Paul appeared happy with the form it took.

“We were able to reach a bipartisan deal that puts needed controls in place to secure America’s investment in research from China’s espionage and malign influence,” Paul said in a statement to Breaking Defense following the Senate’s vote. “The deal also starts to mitigate abuse by so-called SBIR mills, holding them accountable for the egregious amount of taxpayer dollars they have received.”

Among the changes, the legislation subjects companies to increased transition and commercialization benchmarks in order to apply for new Phase I and direct to Phase II awards. Companies that fail to meet the two benchmarks will be subjected to a cap of 20 Phase I or Phase II awards per year. 

The Pentagon and other agencies using the program also will have to deny awards to firms that have ties to Chinese companies or to a firm that “has an owner or covered individual that is party to a malign foreign talent recruitment program.” 

Companies submitting proposals will be required to disclose “any technology licensing or intellectual property sales to a foreign country of concern, including the People’s Republic of China, during the 5-year period preceding submission of the proposal;” according to the bill. 

That last bit was especially “interesting” to Matory.

“I think that’s very interesting that it’s going to work retroactively back,” she said. “So these companies could have been completely compliant, meeting the thresholds because there were thresholds that they had to meet and they now theoretically could be punished, so to speak, or reprimanded for actions that were completely within the boundaries of the program at the time they were doing it.”

The bill also requires the Government Accountability Office to submit a report within 18 months to study stricter limitations on award caps and one year to submit study on who SBIR awardees subcontract with, including how much funding is given to prime contractors. 

In a Sept. 21 press release following the Senate’s vote to pass the bill, Sen. Ben Cardin, D-Md., chairman of the Senate Committee on Small Business and Entrepreneurship, said the SBIR and STTR program were a good investment for the federal government.

“This bill will keep SBIR and STTR going for an additional three years, increase commercialization of technology developed through the programs, and protect our nation’s intellectual property,” Cardin said. “Passing this important bill gives our nation’s innovative small businesses and research institutions the certainty they need to continue developing the technology that will power the economy of tomorrow.”